One day in March of 2009, the proprietors of Redtube.com were minding their own business, streaming free pornographic videos to the public, when they received notice of a lawsuit against them in the mail.

“The ubiquitous distribution of free adult videos through redtube.com has had a massive negative impact on the business model of adult website proprietors,” charged the complaint against Redtube owner Bright Imperial Limited of Hong Kong. “Now that consumers have the ability to watch high quality adult videos for free on redtube.com, fewer are making the choice to pay other adult website proprietors for the same content.”

Thus, Redtube.com has caused “many millions of dollars of damages to proprietors of adult entertainment websites,” including those of the plaintiff in this instance, one Kevin Cammarata of Los Angeles, California. This, he charged, was a violation of California’s Unfair Practices Act.

“The publication of a video on the Internet, whether it depicts teenagers playing football or adult entertainment qualifies as ‘conduct in furtherance of… free speech,” the court ruled last week. “…All of Cammarata’s causes of action arise from Bright’s conduct of placing speech on the Internet where it can be viewed for free by the public. This is the ‘predatory pricing’ that Cammarata complains of.”

The judges also took a look at the Redtube business model, and after a fascinating review of the history of broadcasting and the Internet, rejected the plaintiffs unfair competition claims.

Loss leader?

Welcome to the “tube” industry, a genus of raunchy online content sites that includes… well, just type “sex” and “tube” in a search engine and you’ll be on your way.

Like any of these venues, Redtube doesn’t post free nookie flicks as a philanthropic gesture. Many of the short films on the site are owned and distributed by pay portals like Brazzers and Bangbros, which advertise and convert Redtube watchers into buyers of the longer versions. Also involved in the venture are live chat services like Fling.com and Friendfinder, which banner heavily on Redtube’s pages.

So although Redtube’s videos are “free,” the venue functions as a search engine and preview for these pay sites. They send Redtube a commission fee every time someone forks over credit card money for their services — or, consumers can access some of this content via paid premium subscriptions available on Redtube itself.

Cammarata both admitted and denied this reality in his lawsuit. “Initially redtube.com featured only adult entertainment videos for free,” the filing acknowledged. “Now, Bright still displays streaming videos for free on redtube.com, however, it advertises a ‘premium’ subscription that permits additional capabilities, such as downloading the videos.”

But the complaint still insisted that the real motive behind this business model was anti-competitive. Redtube’s videos function as “loss leader” bait, he charged — super low price items designed primarily to take away business from other pay sites, a violation of the Unfair Practices law.

“These defendants are selling and giving articles or products, namely adult entertainment videos, at less than the cost of such videos to such defendants, for the purpose of injuring competitors and destroying competition,” including Cammarata. This entitled him to “injunctive relief, treble damages and attorneys’ fees,” he thought.

Brought to their knees?

The Appeals Court’s ruling showed some initial sympathy for the plaintiff. Cammarata’s grievance is common among porn producers, the three-judge panel noted. “According to one adult entertainment executive, the formerly profitable subscription-based websites ‘have been brought to their knees’ by the tube-based sites,” they observed without a wink.

But the justices could find no evidence that Redtube’s marketing strategy had anything to do with putting the plaintiff out of business:

If Bright’s business model sounds familiar it’s because it’s the business model typical of broadcast radio and television stations in the United States not to mention thousands of local newspapers and, more recently, tens of thousands of Internet websites including YouTube, CNN and Yahoo.

The undisputed evidence showed that Bright obtains most of the videos it shows on Redtube free of charge from advertisers who pay Bright to display their videos containing their ads. Fundamentally, there is no difference between Redtube and a radio station in the early 1900s that broadcasted records it obtained for free from a music store and, in return, told its listeners where the records could be purchased. (See www.oldradio.com/current/bc_spots.htm; last visited Dec. 7, 2010.) In both cases the broadcaster’s purpose is not to destroy competition or a competitor but to attract patrons to its broadcast site where they will, hopefully, respond to its advertisers’ messages.

Thus were Cammarata’s charges dismissed not only against Redtube proper, but against Bangbros, Brazzers, Friendfinder, and other Redtube partners whom he also sued.

Bottom line: “If Cammarata’s subscription-based website lost revenue after Redtube and other tube-based websites came on the scene it was because the tube-based business model is more efficient, not because of alleged predatory pricing by Bright,” the court concluded.